Auto sector registers healthiest pulse since 2007

The auto sector is firing on all cylinders through the first half of 2013, according to Bob Lutz, former chairman of General Motors.

Lutz said Tuesday (July 2) the new, fleet and used car markets are the healthiest since 2007 and the only threat he sees to derailment would be a sudden rise in interest rates.

June auto sales hit roughly 1.4 million units. That works out to a Seasonally Adjusted Annual Rate (SAAR) of 15.96 million compared to 14.4 million a year ago. The SAAR is an estimate of how much sales would be for a full year at the current monthly pace.

It’s been a long time since automakers got that close to 16 million SAAR – seven years to be exact.

U.S. AUTO SALES
2013: 15.96 million
2012: 13.5 million
2011: 12.8 million
2010: 11.6 million
2009: 10.4 million
2008: 13.2 million
2007: 16.1 million

Pick-up trucks led the way for the big three American auto makers each posting gains for full-size truck sales up more than 20% over a year ago. Analysts said the healthier construction market has led more small businesses that cater that sector to replace their fleets of four to five trucks. The cumulative effect helped General Motors achieve a 29% boost in Silverado truck sales in June.

Ford and Chrysler indicated their full-size truck sales rose 24% from the same month last year.

Overall, June auto sales rose 10.8% from a year ago thanks to low interest rates, wider credit availability and higher home values which has helped hoist consumer confidence in recent months.

Freddie Douglas, a car salesman with Lewis Ford In Fayetteville, said he has seen customers who have put off a new car purchase for nine and 10 years, come in and buy new vehicles last month.

“They used to trade about every two years or so, but it had been a decade since two of my recent customers bought a new vehicle,” Douglas said. “They traded in their vehicles which were still in good shape, and we have those for sale on our used lot.”

USED-CAR IMPACT
Douglas said with new car and pickup sales trending much higher this year, the availability of used inventory is the best it has been in several years. The added number of vehicles has also driven used car prices down after a three year upward trend.

The Manheim used vehicle value index for May stood at 119.1 the lowest reading since the summer of 2010. Wholesale used car values were 4.8% lower than a year ago.

Consultants at Manheim said pricing re-alignment is underway between new and used autos and is heading back toward more normal levels. The pricing impact of higher wholesale supplies in the second half of this year might be less than what many analysts previously anticipated, according to Manheim.

Douglas said consumers with two or three years of good payment records can buy later used cars (2011 or 2012) at the new-car rates charged a year or so ago.

One local company that relies on the used-car market is Bentonville-based America’s Car-Mart Inc. Corporate executives at Car-Mart said in May they anticipate seeing a continued 10% annual growth in their business.

Car-Mart sold 40,737 cars and trucks the past year, 8% more units than it sold in fiscal 2012. The company’s fiscal 2014 began May 1. The company is a buy here, pay here dealer that caters to consumers with blemished credit.

SUBPRIME POSSIBILITIES
As the economy spiraled down following the 2008 recession, Car-Mart found itself catering to a wide audience of consumers who were essentially locked out of the new car arena as the subprime auto credit market evaporated.

In past six months Wall Street banks have gotten back into subprime auto lending which has given new car dealers more options for a wide range of consumers.

Car-Mart admitted it was facing additional competitive pressures from new funding sources available to its best customer base. Jeff Williams, chief financial officer for Car Mart, recently told investors the company has worked to retain its better customers by slightly lengthening the overall contract terms to allow for lower payment comparisons against new car dealers.

Car-Mart’s business model strives to get customer’s paid in full within 2.5 years at the longest. The dealer charges 15% interest, which is slightly higher than conventional bank deals available, even for credit scores in the low 600s.

Car Mart CEO Hank Henderson said the rate charged is necessary given the risks taken on the lower credit borrowers. The difference he said with Car-Mart is a buyer can own their vehicle in half the time of many deals for newer cars sold at traditional dealerships.

In May, Henderson said the Car-Mart model has worked for 32 years and he is confident enough to continue expansion with plans to open 10 to 12 dealerships this fiscal year.

NEW AUTO SALES (JUNE)
Ford 14%
Chrysler 8%
General Motors 6.5%
Nissan 13%
Toyota 10%
Honda 10%
Hyundai 2%
Volkswagen -3%